Wasatch International Growth F – GuruFocus.com

The
Wasatch International Growth
(Trades, Portfolio) Fund released its portfolio for the first quarter of the year earlier this month.

Part of Salt Lake City-based Wasatch Global Investors, the fund is managed by Ken Applegate, Linda Lasater and Derrick Tzau. With the goal of generating long-term capital appreciation, it takes a bottom-up, fundamental approach to find high-quality, small-cap stocks from both developed and emerging markets.

Sticking to these criteria, the portfolio managers added six new stocks to the portfolio during the quarter, sold out of four positions and added to or trimmed a number of other holdings. The fund’s new additions were all in Japanese companies: Rakus Co. Ltd. (TSE:3923, Financial), Hennge KK (TSE:4475, Financial), MedPeer Inc. (TSE:6095, Financial), Change Inc. (TSE:3962, Financial), Freee KK (TSE:4478, Financial) and WealthNavi Inc. (TSE:7342).

Rakus

Wasatch invested in 498,600 shares of Rakus (TSE:3923, Financial), dedicating 0.83% of the equity portfolio to the position. The stock traded for an average price of 2,024.47 yen ($18.51) per share during the quarter.

The Tokyo-based software company, which provides cloud services to improve business efficiency, has a market cap of 367.14 billion yen; its shares closed at 2,026 yen on Tuesday with a price-earnings ratio of 163.34, a price-book ratio of 53.22 and a price-sales ratio of 25.89.

The GF Value Line suggests the stock is significantly overvalued based on historical ratios, past performance as well as future earnings projections.

Rakus’ financial strength was rated 9 out of 10 by GuruFocus. The company not only has a comfortable level of interest coverage, but a high Altman Z-Score of 89.16 as well. The return on invested capital is also higher than the weighted average cost of capital, suggesting it is profitable even though assets are building up at a faster rate than revenue is growing.

The company’s profitability scored a 7 out of 10 rating. Although the operating margin is declining, it still is outperforming versus its history and other companies in the space. Rakus is also being supported by strong returns on equity, assets and capital that are outperforming a majority of competitors as well as a high Piotroski F-Score of 7, which indicates business conditions are healthy.

Wasatch holds 0.28% of the company’s outstanding shares.

Hennge

The fund picked up 112,323 shares of Hennge (TSE:4475, Financial), allocating the holding to 0.65% of the equity portfolio. Shares traded for an average price of 8,129.84 yen each during the quarter.

The Japanese company, which provides information technology services, has a market cap of 80.85 billion yen; its shares closed at 5,050 yen on Tuesday with a price-earnings ratio of 294.39, a price-book ratio of 49.86 and a price-sales ratio of 18.4.

According to the Peter Lynch chart, the stock is overvalued.

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GuruFocus rated Hennge’s financial strength 9 out of 10 on the back of a comfortable level of interest coverage, no long-term debt currently and a robust Altman Z-Score of 25.89. The ROIC also eclipses the WACC, so value is being created as the company grows.

The company’s profitability did not fare as well, scoring a 4 out of 10 rating despite having margins and returns that outperform over half of its industry peers as well as a high Piotroski F-Score of 7. Hennge has also recorded a decline in revenue per share over the past five years.

The
Matthews Japan Fund
(Trades, Portfolio) has the largest holding in Hennge with 1.11% of its outstanding shares. Wasatch holds 0.7%.

MedPeer

Wasatch established an 111,700-share investment in MedPeer (TSE:6095, Financial), giving it 0.57% space in the equity portfolio. The stock traded for an average per-share price of 6,993.13 yen during the quarter.

The company, which provides social networking services to medical and pharmaceutical professionals for the purpose of sharing knowledge, analysis and treatments, has a market cap of 101.18 billion yen; its shares closed at 4,695 yen on Tuesday with a price-earnings ratio of 91.79, a price-book ratio of 16.1 and a price-sales ratio of 15.59.

Based on the GF Value Line, the stock appears to be significantly overvalued.

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MedPeer’s financial strength was rated 9 out of 10 by GuruFocus, driven by a comfortable level of interest coverage as well as a high Altman Z-Score of 47.2. The WACC falls below the ROIC, indicating good value creation.

The company’s profitability also fared well with an 8 out of 10 rating. In addition to an expanding operating margin, MedPeer has strong returns that outperform a majority of competitors and a moderate Piotroski F-Score of 6, indicating business conditions are stable.

The fund holds 0.52% of the company’s outstanding shares.

Change

The International Growth Fund purchased 188,600 shares of Change (TSE:3962, Financial), expanding the equity portfolio by 0.52%. The stock traded for an average price of 3,428.97 yen per share during the quarter.

The software company, which offers mobility, internet of things, big data, cloud and security services as well as human resource training, has a market cap of 215.38 billion yen; its shares closed at 2,927 yen on Tuesday with a price-earnings ratio of 23.83, a price-book ratio of 7.35 and a price-sales ratio of 7.34.

The GF Value Line suggests the stock is modestly undervalued.

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Change’s financial strength and profitability were both rated 8 out of 10 by GuruFocus. The company not only has a comfortable level of interest coverage, but a high Altman Z-Score of 19.63 as well. The ROIC also significantly surpasses the WACC. Assets are building up at a faster rate than revenue is growing, however, indicating the company may be becoming less efficient.

The company is also being supported by an expanding operating margin as well as strong returns that outperforming a majority of industry peers. It also has a high Piotroski F-Score of 7.

Wasatch holds 0.26% of the company’s outstanding shares.

Freee

Wasatch entered a 65,100-share holding in Freee (TSE:4478, Financial). The transaction had an impact of 0.48% on the equity portfolio. The stock traded for an average price of 10,199.2 yen per share during the quarter.

The developer of cloud-based software has a market cap of 450.05 billion yen; its shares closed at 8,150 yen on Tuesday with a price-book ratio of 32.43 and a price-sales ratio of 43.44.

According to the price chart, the stock has gained approximately 200% since its initial public offering in December 2019.

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GuruFocus rated Freee’s financial strength 7 out of 10 on the back of a robust Altman Z-Score of 42.58.

The company’s margins and returns, however, are negative and underperform a majority of competitors.

The
T. Rowe Price Japan Fund
(Trades, Portfolio) is Freee’s largest guru shareholder with a 0.69% position. Matthews Japan also owns the stock.

WealthNavi

The fund bought 43,643 shares of WealthNavi (TSE:7342), doling out 0.12% of the equity portfolio to the holding. Shares traded for an average price of 2,983.53 yen each during the quarter.

The company, which provides asset management and robo-advisory services via a cloud-based platform, has a market cap of 194.46 billion yen; its shares closed at 4,120 yen on Tuesday with a price-book ratio of 27.73 and a price-sales ratio of 72.1.

Based on the price chart, the stock appears to have gained over 100% since its IPO in December.

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WealthNavi’s financial strength was rated 5 out of 10 by GuruFocus. The company is supported by a high Altman Z-Score of 11.78.

The company’s profitability did not fare as well, scoring a 1 out of 10 rating on the back of negative margins and returns that underperform a majority of competitors. It does have a moderate Piotroski F-Score of 4, however.

Rowe Price is WealthNavi’s largest guru shareholder with 0.56% of its outstanding shares. Wasatch holds 0.1%.

Additional trades and portfolio performance

During the quarter, the fund also boosted its holdings of BayCurrent Consulting Inc. (TSE:6532) and Canada Goose Holdings Inc. (TSX:GOOS) and divested of its investments in Asahi Intecc Co. Ltd. (TSE:7747), Chr. Hansen Holdings A/S (OCSE:CHR), Homeserve PLC (LSE:HSV) and Cochlear Ltd. (ASX:COH).

Wasatch’s $1.16 billion equity portfolio, which is composed of 86 stocks, is largely invested in the technology, industrials and health care sectors.

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The International Growth Fund disclosed on its website it returned 24.45% in 2020, outperforming the MSCI AC World Except U.S.A. Small Cap Index’s 14.24% return.

Disclosure: No positions.

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